The Wendy's Co.
) third-quarter 2013 adjusted earnings of 8 cents per share beat
the Zacks Consensus Estimate of 6 cents by 33.3% and the year-ago
earnings of 2 cents by as much as 300%. Margin expansion led to
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Total revenue in the third quarter inched up 0.7% year over year
to $640.8 million but fell short of the Zacks Consensus Estimate
of $647.0 million. Lost revenues from the sale of company-owned
restaurants resulted in soft sales in the quarter.
Company-owned same-restaurant sales in North America grew 3.2% in
the quarter while franchised units saw a 3.1% rise in comps.
Comps benefited from new menu offerings like Pretzel Bacon
Cheeseburger as well as brand transformation initiatives.
Adjusted earnings before interest, taxes, depreciation and
amortization (EBITDA) were up 17% to $98.1 million owing to high
restaurant margin and reduced general and administrative costs.
North American company-operated restaurant margins expanded 170
bps to 15.6% leveraging a favorable sales-mix, thanks to reduced
paper and beverage costs. However, commodity costs were up
100 basis points (bps) per year.
In the third quarter of 2013, the company bought back nearly 5.5
million shares of common stock leaving approximately $59 million
available for further repurchase under the current authorization,
which will cease at the end of 2013.
Wendy's expects average comps at company-operated restaurants in
North America to be 2.0% versus the prior guidance of 2%-3% for
2013. Comps will increase in the final quarter of the year.
Buoyed by the better-than-expected comps performance, management
raised its margins, adjusted EBITDA and earnings per share
guidance for full-year 2013. Company-owned margins at Wendy's are
expected to be 15% for 2013, up from the previously projected
range of 14.2%-14.5%. Margins will be led by the re-imaging and
Adjusted EBITDA guidance was raised to $365 million from the
previous range of $350 million-$360 million while its adjusted
earnings per share are now guided to be 25 cents a share, up from
the range of 20-22 cents a share guided earlier.
However, owing to the strong growth witnessed so far this year,
management intends to make incremental investments in the fourth
quarter to boost growth, which, in turn, will lead to a
year-over-year decline in adjusted EBITDA in the coming quarter.
As a part of its brand revitalization and portfolio optimization
initiatives, Wendy's remains on track to franchise about 425
company-operated restaurants in 13 U.S. markets. The company
expects to finish the process by the second quarter of 2014. This
initiative will trigger royalties and rental income while
reducing general and administrative expenses.
On the expansion front, management reiterated its store opening
guidance of 25 company-owned and 40 franchised units in 2013. The
company is also planning to unveil nearly 45 outlets overseas.
Further, the company plans to shut down 90-100 franchise
restaurants and 20-30 company-operated restaurants in North
America and 15-20 restaurants overseas. Wendy's also plans to
re-image 100 company-operated restaurants in 2013.
The third quarter was a mixed bag for Wendy's. While the earnings
beat and a raised guidance were satisfactory, the sales miss was
a dampener. Share price dropped 11.44% following the release.
Although Wendy's repositioning efforts seem to be on track, the
turnaround process will take time to reap benefits.
Wendy's currently carries a Zacks Rank #3 (Hold). Others players
in the same industry, which look attractive at current levels
Buffalo Wild Wings Inc.
Red Robin Gourmet Burgers Inc.
). While Buffalo Wild Wings and DineEquity carry a Zacks Rank #1
(Strong Buy), Red Robin carries a Zacks Rank #2 (Buy).